Our Commitment to Value for Money (VfM) 2017 Self-Assessment Benchmarking Report 1. Who do we compare ourselves with? 2. Summary overview 3. External benchmarking 3.1 Overall performance 3.2 What do our services cost to provide? 3.3 Interest costs and debt levels 4. Internal benchmarking 1 P a g e
1. Who do we compare ourselves with? We compare ourselves against our comparator group of 23 other Housing Associations. This comparator group has been selected as those Housing Associations with a Moody s rating of A1 or better as at April 2017 and stock of at least 20,000. These are well performing HA s, generally offering a broadly similar range of services at a comparable scale to ourselves. Affinity Sutton Aff Guinness Guin Peabody Peaby Sovereign Sov AmicusHorizon Ami London & Quadrant L&Q Places for People PfP Stonewater Stone Circle Circ Midland Heart MH Radian Rad Together Tog DCH DCH Moat Moa Riverside Rside Walsall WHG Family Mosaic Fam Notting Hill Nott Sanctuary Sanct West Mercia WM Flagship Flag Orbit Orb Southern South For the subsequent analysis, we have: o o o o used published statutory accounts information (2015/16 being the latest complete set); restricted the data shown under any performance measure to the 10 best performers in the comparator group and indicated the range between the top and bottom end performance across the entire comparator group; provided HCA sector-wide benchmarks for the median and upper and lower quartiles for the HCA Social Housing Cost per home metrics; included Bromford Housing Group (BHG) and comparator group information where appropriate for 2014/15. Note, we have not provided any figures for the years prior to 2014/15; the adoption of FRS102 has only been applied to 2014/15 and subsequent years, any trend analysis prior to 2014/15 would therefore not provide a like-for-like comparator to the current year figures and may therefore be misleading. The analysis set out below is the basis of an annual benchmarking workshop with the Board, where we review our comparative performance and any action following that review. We have removed the names of comparators on charts, each chart shows the top 10 comparators. 2 P a g e
2. Summary overview Measure Best Worst Bromford Bromford rank Operating margin 40% 20% 40% 1 st Social margin 49% 22% 48% 2 nd Return on assets 5.0% 0.6% 3.0% 4 th Full interest cover 5.53 1.23 2.86 7 th Social interest cover 3.45 1.05 2.57 3 rd Cash / home 5,388 1,051 2,832 7 th Cash conversion 178% 69% 120% 7 th Voids & bad debts 1.01% 3.85% 1.28% 6 th Gross arrears 2.66% 11.64% 4.05% 3 rd Headline social housing CPU 2,462 6,885 2,864 3 rd Management CPU 511 1,789 671 3 rd Service charge CPU 163 1,248 341 6 th Major repairs CPU 443 1,902 718 10 th Total Maintenance CPU 561 1,833 626 2 nd 3 P a g e
Measure Best Worst Bromford Bromford rank Reactive repairs CPU 396 1,072 547 3 rd Other Social Housing CPU 53 2,122 508 16 th Full cost of funds 3.9% 15.5% 5.3% 12 th Debt per unit 12k 40k 18k 9 th 4 P a g e
3. External benchmarking 3.1 Overall performance 3.1.1 Operating Margin Operating Margin is a measure of efficiency and economy and is a key VfM measure for us. The margin needs to be considered alongside effectiveness for which our key measure is customer advocacy. Customer advocacy is by its nature difficult to benchmark; it is not measured in a consisted manner in the sector. It therefore does not form part of this benchmarking report but our customer advocacy performance is reported in our statutory accounts. We look at margin in two ways: Operating Margin: Social Operating Margin: the operating surplus divided by the turnover as set out on the face of the Statement of Comprehensive Income; and is the social housing operating surplus divided by the social housing turnover as set out in Note 3 of the statutory accounts. 50% 45% 40% 2016 statutory accounts: operating margins 2016 Operating Social Top: 40% 49% Bottom: 20% 22% Bromford 40% (= 1 st ) 48% (2 nd ) Sector average 28% 35% 30% 25% 20% BHG_15 BHG_16 HA1_16 HA2_16 HA3_16 HA4_16 HA5_16 HA6_16 HA7_16 HA8_16 HA9_16 HA10_16 Operating margin Social Margin 5 P a g e
On both measures, our margins continue to be amongst the very best in the sector. Our VfM framework is designed to drive a continuing improvement in this key measure, and both measures improved from 2015 to 2016. The range of the Operating Margin for our comparator group in 2016 was from 20% to 40%; Bromford s were joint-top ranked with 40%. However, we are aware of a HA operating at a similar scale and in similar geographies to Bromford who generated an Operating Margin of 43% in 2016. As further context for overall performance of the comparator group against the sector, the HCA sector accounts show an average operating margin in 2016 of 27.6% (2015 27.4%) 1. The range of Social Operating Margin for our comparator group in 2016 was from 22% to 49%; Bromford were 2 nd with 48%. The trend in margins shows that we have consistently achieved sector leading results on these measures over the past two years: 50% 40% 30% 20% 10% Operating margin trend 2015-2016 2016 Top: 40% Bottom: 20% Bromford 40% (= 1 st ) Sector average 28% 0% BHG HA1 HA2 HA3 HA4 HA5 HA6 HA7 HA8 HA9 HA10 2015 2016 50% 40% 30% 20% 10% 0% Social margin trend 2015-2016 2016 Top: 49% Bottom: 22% Bromford 48% (2 nd ) BHG HA1 HA2 HA3 HA4 HA5 HA6 HA7 HA8 HA9 HA10 2015 2016 6 P a g e
3.1.2 Return on Assets We measure the full Return On Assets: the profit for the year (after tax) as a percentage of the NBV of our housing properties. Our performance has improved year on year from 2.2% in 2015 to 3.0% in 2016. We rank equal 4 th in our comparator group, an improvement from 8 th in 2015. Factors such as the previous history of mergers or acquisitions may affect a HAs reported return on assets, so our improving trend is perhaps more important than the absolute number. Some HAs have shown more significant year on year fluctuations; the volatility in reported surpluses/ losses has increased with the introduction of FRS102 accounting in the 2016 accounts, thus making some traditional benchmarking ratios difficult to compare. 7.0% 6.0% Return on assets trend 2015-2016 2016 Top: 5.0% Bottom: 0.6% Bromford 3.0% (= 4 th ) 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% BHG HA1 HA2 HA3 HA4 HA5 HA6 HA7 HA8 HA9 HA10 2015 2016 7 P a g e
3.1.3 Interest Cover Maintenance of our financial viability has been identified as a key source of VfM for both our Regulator and our funders. A key aspect of this is our ability to meet our interest payments. Our main measure of this is the Full Interest Cover; the ratio of our operating surplus (plus the gain on disposals) to our net interest costs. A value greater than 1 indicates our net income is more than sufficient to meet our interest costs. A value of less than 1 indicates that we are unable to meet our interest costs from our income. We are ranked 7 th in our comparator group, but our performance on this measure is strong and has been improving, from 2.62 in 2015 to 2.86 in 2016. The Full Interest Cover across the comparator group ranges from 1.23 to 5.53. We also calculate Social Interest Cover; the comparison of operating surplus from social housing activity and the net interest cost. Social Interest Cover is a strong indication of sustainable underlying performance and our performance on this measure is amongst the best in the comparator group and continues to gradually improve. Out Social Interest Cover is 2.57; the range of the comparator group is 1.05 (bottom end) to 3.45 (top end). 2016 statutory accounts: Interest cover 2016 6.00 5.00 4.00 3.00 2.62 2.86 5.53 3.45 5.35 3.86 3.64 3.22 3.13 2.80 2016 Full Social Top: 5.53 3.45 Bottom: 1.23 1.05 Bromford 2.86 (7 th ) 2.57 (3 rd ) 2.40 2.34 2.29 2.00 1.00 0.00 BHG_15 BHG_16 HA1_16 HA2_16 HA3_16 HA4_16 HA5_16 HA6_16 HA7_16 HA8_16 HA9_16 HA10_16 Full Interest Cover Social Interest Cover 8 P a g e
3.1.4 Cash Generation Another aspect of financial viability is our ability to generate cash from operating activities. In most cases, a HA s cash generation will depend on the size of its housing stock. For the purposes of benchmarking it is therefore more insightful to measure cash generated per home. On this basis, Bromford are ranked 7 th in the comparator group, generating 2,832 per home. The comparator group ranges from 5,388 at the top end to 1,051 at the bottom end. Another useful measure of cash generation is our ability to convert operating surpluses into operating cashflow; we convert at 120%, a strong performance amongst the comparator group. 6,000 5,000 4,000 3,000 2,000 1,000 2016 statutory accounts: Net cash from operating activities per home and cash conversion 2016 Cash/home Conversion Top: 5,388 178% Bottom: 1,051 69% Bromford 2,832 (7 th ) 120% (7 th ) 200% 180% 160% 140% 120% 100% 80% 60% 40% 20% 0 BHG_15 BHG_16 HA1_16 HA2_16 HA3_16 HA4_16 HA5_16 HA6_16 HA7_16 HA8_16 HA9_16 HA10_16 2016 cash conversion 0% 9 P a g e
Voids and bad debts 3.1.5 Do we collect our rent? Our relative performance on void and bad debt loss and gross rent arrears as a percentage of turnover from social housing lettings is shown below: 2.00% 1.75% 1.50% 1.25% 1.00% 0.75% 0.50% 0.25% 0.00% 2016 Voids/BD Gross Arrears Top: 1.01% 2.66% Bottom: 3.85% 11.64% Bromford 1.28% (6 th ) 4.05% (3 rd ) 2016 statutory accounts: rent collection BHG_15 BHG_16 HA1_16 HA2_16 HA3_16 HA4_16 HA5_16 HA6_16 HA7_16 HA8_16 HA9_16 HA10_16 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Gross arrears Voids and Bad Debts Gross Arrears Our performance on void and bad debt loss has improved from 2015 (1.37%) to 2016 (1.28%). We perform well within the comparator group which ranges from 3.85% to 1.01%. Our gross arrears are the 3 rd lowest in the comparator group at 4.05%. The comparator group ranges from 2.66% to 11.64%. Our gross arrears increased from 2015 to 2016 due to the impact of welfare reform with housing benefit now paid directly to the tenant instead of the landlord. Our Neighbourhood Coaching model was introduced to provide further support to customers and the gross arrears position improved in the 2017 stat accounts to a performance better than 2015 (2017: 3.2%). This shows the importance of focusing on changes for our customers and supports our plan to rollout the Deal to more of our customers via our localities plan, building a relationship with every customer. 10 P a g e
3.2 Cost of Our Services 3.2.1 Overall Performance Our preferred measure for this is the HCA Social Housing Cost per Unit; the total operating costs per the Statement of Comprehensive Income less depreciation plus capitalised major repairs. Our performance on this measure is 2,864 per home; the third strongest across the comparator group which ranges from 2,462 per home to 6,885 per home. Our year on year performance has steadily improved from 2,946 in 2015 to 2,864 in 2016. Our overall operating cost is broadly stable but delivering to a growing housing stock; HCA Social Housing Cost per unit is therefore decreasing year on year. The chart below demonstrates our performance across the comparator group and also against the 2016 sector-wide median ( 3,570 per home) and quartiles ( 3,120 per home and 4,350 per home). Our overall performance remains within the top performing quartile in the sector. 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 Headline social housing cost per unit (HCA) trend 2015-2016 2016 Top: 2,462 Bottom: 6,885 Bromford 2,864 (3 rd ) Median 3,570 UQ / LQ 4,350 / 3,120 0 BHG HA1 HA2 HA3 HA4 HA5 HA6 HA7 HA8 HA9 HA10 2015 2016 2016 LQ 2016 Median 2016 UQ 11 P a g e
HCA sector cost comparisons 2016 Headline social housing CPU ( k) Management CPU ( k) Service charge CPU ( k) Maintenance CPU ( k) Major repairs CPU ( k) Other social housing costs CPU ( k) Bromford Group 2.86 0.67 0.34 0.62 0.71 0.32 Sector level data Upper quartile 4.35 1.32 0.60 1.18 1.08 0.45 Median 3.57 1.02 0.36 0.97 0.81 0.21 Lower quartile 3.12 0.74 0.24 0.79 0.54 0.08 Key: Below lower quartile Lower to median Median to upper Above upper quartile The constituent components of the HCA Headling Social Housing Cost per home are explored in turn in the following sections of this report. 12 P a g e
3.2.2 Management Cost per home Our Management Costs have steadily improved year on year, from 714 per home in 2015 to 671 per home in 2016; broadly our VfM activity is off-setting the effects of inflation. We rank 3 rd in our comparator group and are within the top performing quartile across the sector. 1,400 Management cost per home trend 2015-2016 2016 Top: 511 Bottom: 1,789 Bromford 671 (3 rd ) Median 1,020 UQ / LQ 1,320 / 740 1,200 1,000 800 600 400 200 0 BHG HA1 HA2 HA3 HA4 HA5 HA6 HA7 HA8 HA9 HA10 2015 2016 2016 LQ 2016 Median 2016 UQ 13 P a g e
3.2.3 Service Charge per home Our Service Charges have remained steady year on year ( 341 per home in 2016 and 339 per home in 2015). We rank 6 th in our comparator group and our performance is within the second quartile across the sector. We are aware that our service charge is relatively high in the sector as we have an above average element of supported housing and sheltered housing stock. 700 Service charge per home trend 2015-2016 2016 Top: 163 Bottom: 1,248 Bromford 341 (6 th ) Median 360 UQ / LQ 600 / 240 600 500 400 300 200 100 0 0 HA1 HA2 HA3 HA4 HA5 HA6 HA7 HA8 HA9 HA10 2015 2016 2016 LQ 2016 Median 2016 UQ 14 P a g e
3.2.4 Major Repairs per home Our Major Repairs Costs have steadily increased year on year, from 689 per home in 2015 to 718 per home in 2016. We rank 10 th in our comparator group and are just under the median level ( 810 per home) within the second quartile when measured across the sector. Our performance has been influenced by the frontended the investment we made in our affordable warmth program which was agreed by the Board as part of the existing homes plan. 1,200 HCA Major repairs per home trend 2015-2016 2016 Top: 443 Bottom: 1,902 Bromford 718 (10 th ) Median 810 UQ / LQ 1,080 / 540 1,000 800 600 400 200 0 BHG HA1 HA2 HA3 HA4 HA5 HA6 HA7 HA8 HA9 HA10 2015 2016 2016 LQ 2016 Median 2016 UQ 15 P a g e
3.2.5 Maintenance cost per home Our Maintenance Costs have improved year on year, from 680 per home in 2015 to 626 per home in 2016. We rank 2 nd in our comparator group and our performance is within the top performing quartile across the sector. 1,400 HCA maintenance per home trend 2015-2016 2016 Top: 561 Bottom: 1,833 Bromford 626 (2 nd ) Median 970 UQ / LQ 790 / 1,180 1,200 1,000 800 600 400 200 0 BHG HA1 HA2 HA3 HA4 HA5 HA6 HA7 HA8 HA9 HA10 2015 2016 2016 LQ 2016 Median 2016 UQ 16 P a g e
The Routine Maintenance (Reactive Repairs) element of the maintenance costs have also been benchmarked: 900 Reactive repairs per home trend 2015-2016 2016 Top: 396 Bottom: 1,072 Bromford 547 (3 rd ) 800 700 600 500 400 300 200 100 0 BHG HA1 HA2 HA3 HA4 HA5 HA6 HA7 HA8 HA9 HA10 2015 2016 Bromford s 2016 reactive repairs cost per home was 547; 3 rd in the comparator list and an improvement from 596 per home in 2015. 17 P a g e
3.2.6 Other Social Housing Costs per Home Our Other Social Housing Costs per Home are amongst the highest in our comparator group and are within the upper quartile of the sector. These costs include the supporting people contract costs, which do not relate to number of units managed. 600 500 HCA "Other costs" per home trend 2015-2016 2016 Top: 2,122 Bottom: 53 Bromford 508 (16 th ) Median 210 UQ / LQ 450 / 80 400 300 200 100 0 BHG HA1 HA2 HA3 HA4 HA5 HA6 HA7 HA8 HA9 HA10 2016 2016 LQ 2016 Median 2016 UQ 18 P a g e
3.3 Interest Costs and Debt Levels 3.3.1 Cost of Funds Our average cost of borrowing in 2015/16 was 4.59% (c.f. 4.62% in 2014/15). This slight decrease was the result of the contractual repayment of variable rate lines and Revolving Credit Facilities ( RCF ) repayments. The full cost of funds (that is cost calculated after including capitalised interest) for our comparator group is shown below: 6.00% Full cost of funds trend 2015-2016 2016 Top: 15.5% Bottom: 3.9% Bromford 5.3% (= 12 th ) 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% BHG HA1 HA2 HA3 HA4 HA5 HA6 HA7 HA8 HA9 HA10 2015 2016 Our cost of funds is largely determined by our fixed debt costs. Fixed rate debt is a relatively high proportion of our portfolio (84% in 2017 c.f. 80% fixed at 2016) and most of it (c.90%) was fixed several years ago when interest rates were considerably higher. An additional 15% ( 74m) of fixed rate debt will come to an end in the next 5 years, and this will reduce our cost of funds further. The average cost of funds for the year, calculated from actual interest rates, was 4.48%. The chart above reflects a snapshot position at year-end, calculated as interest paid for the year divided by year end loan balances. Over the course of the year, we repaid some of our revolving credit facilities and some of our fixed 19 P a g e
debt came to maturity, lowering the year end loan balances and inflating the cost of funds as measured on the year-end loan balance basis to 5.2% in the chart above. It is possible to secure the early end of other fixed rate transactions, but this will incur a significant upfront cost (essentially an accelerated payment of interest) and we have not judged this to be the best use of resources. 3.3.2 Debt per Unit Another key VfM deliverable is investment in new homes. Historically, this has been achieved by taking on debt in relation to existing homes to build new ones. Comparative levels of debt per unit is therefore a measure we examine: 25,000 20,000 Debt per unit trend 2015-2016 2016 Top: 12k Bottom: 40k Bromford: 18k (9 th ) 15,000 10,000 5,000 0 BHG HA1 HA2 HA3 HA4 HA5 HA6 HA7 HA8 HA9 HA10 2015 2016 Our levels of debt / unit are broadly similar to others in the group, and decreased slightly in 2016 due to repayments and no new funding being drawn. 20 P a g e
3.3.3 Debt summary The following table highlights our current position on key measures at 2016 and 2017: 2016 2017 Borrowing 583m 583m Undrawn facilities 122m 154m Fixed rate borrowing 80% 84% Cost of borrowing 4.48% 4.39% Asset gearing covenant (66.67% max) 29% 28% 21 P a g e
4. Internal Benchmarking 4.1 Management costs per home The chart below shows our Direct Housing Management Costs by service team, which have increased in overall terms by 0.7m from 8.6m in 2016 to 9.3m in 2017 (note, the 2016 figures were previously reported to be 8.95m but this figure has been re-based to account for the more accurate re-allocation of MA and PA time to the appropriate areas of the business). The key year on year increase is in the Neighbourhoods, Housing Operations and Management costs by 42% to 4.26m, reflecting our investment in the training and deploying of new Neighbourhood Coaches to deliver our Localities Plan following last year s successful pilot. We expect the Localities Plan to generate operational cost savings in future years as the benefits of more personalised coaching for tenants is realised. 22 P a g e
4.2 Maintenance costs per home It should be noted that the Reactive Repairs per home is an average of normal day-to-day repairs and the costs of repairing properties when they are empty. We have seen improvements in performance in both of these service areas. The charts below demonstrate how we monitor performance by regional area and by component cost of repair: 23 P a g e
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4.3 Other costs The chart below shows how we have increased the cost of central support team overheads from 13.5m in 2015/16 to 14.5m in 2016/17, an increase of 8%. We have increased our expenditure on ICT & Projects costs to support our business transformation programme, and our People costs have increased as a result of the additional recruitment and training of Neighbourhood Coaches and the New Homes development team. We will continue to review the VfM of our support team services. 25 P a g e
Notes 1. Source: 2016 Global accounts of private registered providers (HCA publication). 26 P a g e